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It's Bizarro Headline "Explanation" Day

Ah, the wonderful life of a mainstream media journalist where everything is linear, where everything is perfectly explainable to an overeager public using "as" linkers, and where in the name of propaganda and keeping your editor happy, logic and objectivity is also known as "collateral" damage.

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Soaring Yield, Plunging Bid To Cover, Collapsing Direct Interest Make Miserable 5 Year Auction One To Forget

Not much good to say about the just completed 5 Year auction but we'll say it anyway: pricing at a yield of 1.484%, in line with the When Issued, this was the highest auction break for 5 Year paper since July 2011, or just before the great debt ceiling Snafu. What's worse, the Bid To Cover tumbled from 2.79 in May and a 2.81 TTM average to a tiny 2.45, the worst and first sub 2.50 bid to cover since September 2009. And worst was that Direct bidders, until recently some of the most vocal auction participants, and who had been responsible for 15.4% of the average allocation in the last 12 auctions (and a whopping 23.3% in the May edition), crashed to a miniscule 3.6% - the lowest since November 2009. Bid-side demand was frankly terrible with just $85.7 billion in interest tendered, compared to an average number just shy of $100 billion in the past year. This was mostly due to a plunge in Direct tenders from $14 billion to $6.7 billion. The resultant "surge" in Indirect bids was not an indication of interest by foreign bidders, but a collapse of interest by all other classes. Like we said: not much to say here...

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France Jobseekers Hit Another All-Time Record

Despite the jump in French PMI (though still in contractionary region), the number of French Jobseekers rose once again (up 11.5% year-over-year) to a new all-time record. As the nation struggles with near Depression-era activity, it seems the green shoots that Draghi's jawboning once again provided today remain a long way off in real-world land.

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Hugh Hendry: "The Invisible Regime... Has Become Unhinged"

"This year we have pursued five macro themes: long the US dollar, short China, long Japanese equities, long low variance equities and long interest rate contracts at the short end of G10 fixed income markets... The invisible regime of low volatility and low correlations that had been so supportive of risk markets for at least the last year started to become unhinged."

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Chinese Banks Stop Lending Due To Liquidity Freeze

If one thought the schizophrenic lies out of Europe between 2010 and 2013 were bad enough (the bulk of which it now appears were orchestrated by Mario Draghi), here comes China, a country which already has a "credibility" issue so to say, which has no choice but to lie as blatantly as possible in order to preserve some semblance of stability. The reason: as first forecast here months ago, and as has subsequently materialized, the credit/liquidity collapse in the country that lives and breathes on credit creation is rippling through the banking sector and causing unprecedented fallout for a financial industry that is already starved for every marginal yuan. Not unexpectedly following news that various retail and online banking services had been impaired in the early part of the week at China's biggest banks, now Caixin reports that banks are simply shutting lending to both businesses and individuals.

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Snowden Not Debriefed, Russia Says; As Ecuador Demands US Position In Writing

Following Putin's colorful description of the no-man's-land that Edward Snowden seems to reside in, Wikileaks has confirmed this morning that "Mr. Snowden is not being 'debriefed' by the FSB. He is well." As Rianovosti notes, there has been widespread skepticism that the presence of the Snowden at a Moscow airport would not have prompted any interest from Russian intelligence officials. Snowden’s ultimate destination is unknown, but Ecuador – which has given refuge to WikiLeaks founder Julian Assange at its embassy in London – has now demanded that, as The South China Morning Post reports, the US must “submit its position” regarding Snowden to the Ecuadorian government in writing as it considers his request for asylum. Ecuador's foreign minister added, "his government could take months to decide whether to grant asylum."

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Guest Post: Europe's Precarious Banks Will Determine The Future

It is easy to get the impression that the naysayers are wrong on Europe. After all the predictions of Armageddon, ten-year government bond yields for Spain and Italy fell to the 4% level, France which is retreating into old-fashioned socialism was able to borrow at about 2%, and one of the best performing bond investments has been until recently – wait for it – Greek government bonds! Admittedly, bond yields have risen from those lows, but so have they everywhere. It is clear when one stands back from all the usual euro-rhetoric that as a threat to the global financial system it is a case of panic over. Well, no. Europe has not recapitalized its banking system the way the US has (at great taxpayer expense, of course). Therefore, it is much more vulnerable. Where European governments and regulators have failed to make their banks more secure it is because they tied their strategy to growth arising from an economic recovery that has failed to materialize. The reality is that the Eurozone GDP levels are only being supported at the moment by the consumption of savings; in orther words, the consumption of personal wealth. Wealth that is not infinite; and held by those not likely to tolerate footing the bill for much longer.

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Supreme Court Strikes Down DOMA


In what is likely to cause a storm of controversy, the Supreme Court ruled against the 17-year-old anti-gay Defense of Marriage Act:


Kennedy: DOMA "humiliates tens of thousands of children now being raised by same-sex couples"

Scalia: "By formally declaring anyone opposed to same-sex marriage an enemy of human decency, the majority arms well every challenger to a state law restricting marriage to its traditional definition,"

"DOMA is unconstitutional as a deprivation of the equal liberty of persons that is protected by the Fifth Amendment."

Full timeline and opinion below.

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Mortgage Applications Collapse To Lowest In 19 Months

Once again it seems cash is king if the housing recovery is to continue. Despite the surge in prices that we saw yesterday that reflected the long-forgotten days before mortgage rates exploded, the housing recovery meme remains loud and proud. But, mortgage applications are now down for 7 of the last 8 weeks and have collapsed a stunning 29% over that time. - the biggest plunge in 30 months. It appears that the 'rational' buyer has decided that higher rates are not the factor that drives them to snap up that surging priced home? Is it any wonder, as we noted here, in spite of being told every day how 'affordable' housing is with rates this low, their real purchasing power (given a limited budget as opposed to free money-based finance) has plunged by 16% (for now).

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From Extend-And-Pretend To Lie-And-Deny

The problem here is not so much that the lies are told but that the lies are believed. Every politician on the Continent trumpets and echoes what they want you to hear and believe and then they expect you to act upon what you are told. Every media publication, as an example, repeats the official debt to GDP ratios as a matter of truth because that is what they are told. Then everyone is, "Shocked…Shocked" when the numbers do not add up and the bills that must be paid are so high because what is uncounted or what is lied about still has to be dealt with in the end. Will this ever be really recognized; we have no idea. Will people ever wake up; we cannot say. We can say this though. If they do Dante's Inferno will look like Paradise Lost.

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Final Q1 GDP Is A Huge Miss, Personal Consumption Craters

Remember the key component of the Fed's baffle with BS strategy: namely "baffle with BS." Following yesterday's epic trifecta of economic growth when durables, housing and confidence data all slammed expectations, it was up to GDP to be the bad cop. Sure enough, following the already disappointing first Q1 GDP revision which revised the preliminary 2.5% number to 2.4%, today economists were expecting an unchaged print. Instead they got a crash to 1.77%. And on what? Why the collapsing US consumer whose true colors have finally come out in the final Q1 GDP revision: responsible for 2.40% of the GDP print in the first revision, Personal Consumption Expenditures tumbled to just 1.83% of GDP. In absolute terms, PCE plunged from 3.4% to 2.6% on expectations of 3.4%. There goes the buying power of the overlevered, undersaved US consumer.

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Frontrunning: June 26

  • Scalpel in Hand, Chinese Premier Li Stirs Reform Hopes (Reuters)
  • Obama Sets Conditions for Keystone Pipeline Go-Ahead (FT)
  • World’s Most Indebted Households Face Rate Pain (BBG)
  • SAC Probers Weighing 'Willful Blindness' Tack (WSJ)
  • Draghi Says ECB Ready to Act, Calls for Investment Over Tax (BBG)
  • U.S. Tops China for Foreign Investment (WSJ)
  • Basel Presses Ahead With Plans to Limit Bank Borrowing (FT)
  • Gillard Ousted as Australia PM by Rival Rudd (FT)
  • Japan Economic Strength Will Show in Stocks, Nishimura Says (BBG)
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Futures Lifted By Verbal Cental Banker Exuberance

Once again it is all about central banks, with early negative sentiment heading into Asian trading - following the disappointing announcement from the PBOC about "ample liquidity" leading to the 6th consecutive drop in the Shanghai Composite while the PenNikkeiStock index tumbled yet again -  completely erased and flipped as Mario Draghi spoke, although not to explain his involvement with the latest European derivative window-dressing scandal, but to announce that he is, once again, "ready to act" (supposedly through the OMT, which despite the best hopes to the contrary, still DOES NOT OFFICIALLY EXIST) and that while it is up to government to raise growth potentials, growth would "partly come from accommodative policy." In other words, ignore all BIS warnings, for Europe's unaccountable Goldmanite overlord Mario Draghi continues to promise more morphined Koolaid (read record Goldman bonuses) to any banker that comes knocking.

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Indian Rupee Drops To Record Low Against Dollar, Gold Crash Accelerates

The unintended consequences of a centrally-planned world continue to peek through at the most unexpected of place, as moments ago the Indian Ruppe just plunged to a new all time record low against the USD, with the USDINR rising over 60 for the first time, triggering stops and overriding any potential USD selling intervention that the RBI may have attempted just below the resistance level which took place 59.985 according to Reuters.

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Italy Embroiled In Latest Derivative Loss Fiasco Through Another Mario Draghi-Headed Scandal

It was roughly four years ago when details surrounding such Goldman SPV deals as Titlos first emerged, that it became clear how for over a decade, using deliberately masking transactions such as currency swaps, Greece had managed to fool the Eurozone into believing its economy was doing far better, and its debt load was far lower than it actually was in order to comply with the Masstricht treaty's entrance requirements. As for the Pandora's Box that was opened following the disclosure of just how ugly the unvarnished truth in Europe is, following the Greek disclosure, leading to the general realization that the European experiment has failed and it is now only a matter of time before its final unwind, any comment here is unnecessary - ths has been widely discussed here and elsewhere over the past several years. Now it is Italy's turn. Overnight, the FT reported that "Italy risks potential losses of billions of euros on derivatives contracts it restructured at the height of the eurozone crisis."

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